The Bank of Canada (BOC) raised its benchmark interest rate by 50 basis points to 3.75 per cent Wednesday morning, in an effort to combat high inflation.
Aaron Ruston, president and CEO of Purposed Financial in Moose Jaw, says the increase wasn't as high as many analysts were predicting.
"It was anticipated that there would be another hike in interest rates. I think the surprise was it wasn't as high as anticipated. It was a 50 basis points increase whereas the markets were anticipating kind of a three quarters per cent or .75 per cent increase. It was anticipated along with probably a couple more before year-end or into next year. A bit of a relief that it wasn't as high as people had thought."
Ruston says that for consumers that owe money, this announcement is going to hurt.
"It's definitely going to pop things like variable rate mortgages or variable rate lines of credit, those types of things. Those that owe money, it's going to bring quite a squeeze on the bottom line, again if they're variable rates and their payments can fluctuate. The overnight benchmark is 3.75 per cent now, so what that essentially means is, that's what the Bank of Canada has set for banks to borrow from them and then the bank adds their piece on top...and then any specialty loans are above that. It is going to put the squeeze on, there is no doubt and with the inflationary increase of the cost of food and everything related to our everyday life, it's going to be a bit of an owie for people again."
He notes the increase is designed to raise the cost of doing business to the point where it drives down the cost of the materials to buy, adding it stops some of the borrowing and some of the productivity, which in turn brings down prices overall.
Ruston is expecting to see further interest rate hikes down the road.
"I have a feeling that in their next commentary, their next move, it will be another bump. Who knows? Again, this was slightly lower than what was anticipated but everything seems to be pointing towards continued increased interest rates, not only here but in the U.S. as well. We also have to realize too, if we don't raise interest rates and interest rates are rising elsewhere, people will tend to move some of their money to the U.S., which will take money out of here and with our decreasing value of our Canadian dollar against the U.S., it is a move that had to be made from an economic perspective as well."
He had this advice for consumers.
"Sometimes the best investment you can make is to pay down non-deductible debt. For those that are holding a larger bit of cash in their bank accounts or in savings, they're still getting relatively low [interest rates]. If they owe large amounts on credit cards, I would consider paying down those non-tax deductible debts because that would be the best move from a financial perspective overall."